Owning a small business was a lifelong dream of yours, so you took the matter into your own hands and brought it to life. Although it took years of hard work to turn your vision into a reality, it paid off in the end. It’s now your pride and joy that you want to protect at all costs, so you follow the best practices to keep your business thriving.
You meet the legal requirements down to a T, keep documentation up to date, stay on top of ever-changing trends, regularly back up your files, and protect intellectual property. It seems like you have everything figured out. And then, out of the blue, you’re forced to close down due to an interruption (read problem) that’s out of your control. Now what?
In a world full of uncertainties, you need to learn to expect the best but prepare for the worst. As Benjamin Franklin once said, “by failing to plan, you’re planning to fail”. When the situation is out of your hands, having them both tied is the last thing you want. So, without further ado, here’s how you can protect your cash flow and assets from the unexpected.
What Does Interruption Mean in Business?
Business interruption is the inability to carry out work for a period of time, due to a natural disaster, outage, theft, loss of personnel, cyber security breach or any other event that affects your operations. For instance, in the event of flooding or fire, you’ll need to evacuate and close down for necessary repairs.
But luckily, you’re smarter than that, and you can rely on insurance to cover the cost of obtaining new equipment or machinery. Be that as it may, the settlement of your claim will probably take a couple of weeks, if not months, leaving your cash flow at stake. The solution? Choosing to set up a business interruption policy that protects the gross profit of your business.
What Is Business Interruption Insurance?
This type of insurance protects your business income so you can meet ongoing operational expenses as you’re recovering. Sometimes referred to as income coverage, the business interruption policy injects a cash flow that replaces income loss so you can stay afloat while you’re closed for business.
Why is this important? Because it’d be impossible for you to pay wages, rent and other operating expenses if you’re unable to trade. Unfortunately, many businesses fail to prepare for an unexpected disruption, which in many cases results in an inability to start operating as usual once it’s time to reopen. Without a business income coverage, you’re needlessly leaving your livelihood to chance, something that can crumble all your hard work overnight.
What Does the Policy Cover?
This policy typically covers a range of insurable events like fires, storms, cyclones, earthquakes etc. It can also be triggered if you’re denied physical access to your premises. Here are some of the expenses covered and the ways this can help your business.
Compensation for Lost Revenue
This includes the income you would’ve made if the insurable event hadn’t occurred. When lost revenue is covered by your insurance policy, a temporary shutdown doesn’t have to progress into indefinite closure or business liquidation.
Ability to Retain Employees
This enables you to pay salaries and wages to employees. Even the most loyal team will be forced to abandon a sinking ship. Of course, you can always re-hire, but this process is notorious for its hidden costs. In addition, the time you’ll need to train new employees will be another challenge you’ll need to deal with once you reopen.
Keeping Up with Taxes and Interest Payments
Just because your revenue has suffered a loss, that doesn’t mean you’re free from paying taxes. A business interruption insurance policy may help you settle taxes that are due and save on interest payments. The same goes for creditor and loan repayments.
Moving to a New Location
Let’s suppose that your premises took the biggest hit, and even if you replaced the equipment and other contents, you still won’t be able to carry out business from the same location. In this case, you can use the payout from your interruption insurance to make the rent or lease payment required for a new office.
Who Needs Business Interruption Insurance?
If you run a small business that heavily relies on a physical location or machinery that can be easily affected by fire, storm, impact or accidental damage, it’s wise to consider this type of coverage. Whether it’s a restaurant, retail store, beauty salon or any other business that can’t switch to a hybrid or online work model—business income coverage can help you remain in the same position you were in before the insurable event.
Speaking of online and hybrid work models, you should also consider cyber insurance packages that’ll help you battle the consequences of a security breach. The interruption coverage in cyber insurance is specially designed to address lost sales that couldn’t be completed due to the breach. Moreover, it can also help you deal with other problems that the business may face from relying on online services to carry out work or store information about clients.
As you can see, this policy makes all the difference between a temporary setback and business termination. If you don’t have a solid risk management plan and a cover set, it’s time to get things right and protect your business and livelihood. With that being said, you can now get in touch with a professional insurance broker in your area.